Container freight is poised for a downcycle – placing downward strain on charges and provider income – beginning in 2026 as an unprecedented wave of recent vessel capability enters the market. However regardless of indicators of overcapacity in 2025, carriers proceed ordering new vessels and holding onto older ships.
In a latest Freightos market replace webinar, Parash Jain, Managing Director, International Head of Transport & Logistics Analysis at HSBC shared his evaluation of this state of affairs: This seemingly counterintuitive technique displays provider classes discovered from latest disruptions and longer-term strategic positioning, at the price of price and income challenges for carriers within the coming years.
Key Takeaways
- There’s a motive vessels aren’t being retired. Regardless of overcapacity considerations, carriers are sustaining older vessels as insurance coverage towards unpredictable disruptions, the “recognized unknowns” of worldwide delivery – like COVID and the Purple Sea disaster –- for which out there capability has helped carriers preserve containers transferring and maximize volumes and income.
- Pandemic-era earnings have each allowed carriers to pay down vessel debt – lowering strain to scrap ships – and enabled them to arrange for the longer term now by way of newbuilds
- Particular person carriers should make vessel buy selections based mostly on their very own wants and techniques, not on the mixture capability stage out there – likewise contributing to vessel order progress regardless of trade overcapacity
- Anticipate a cyclical sample of sharp price dips adopted by durations of restoration by way of capability administration within the close to time period, although total price ranges will doubtless development decrease than 2025 by way of the downcycle. Within the long-term, the bigger fleets will make the market extra resilient (ought to carriers select to activate them when the going will get robust).
An oversupplied market: Traits in overcapacity
One of many greatest elements more likely to influence container charges in 2026 is the rising international fleet.
Since 2021, carriers have been plowing their file earnings earned from file revenues through the pandemic years right into a file variety of orders for brand spanking new vessels – a few of which began being delivered in 2023. In accordance with S+P, an estimated ten million TEU of container ship capability – the dimensions of a 3rd of the present energetic fleet – is now on order and will probably be delivered over the following few years.
As demand eased post-pandemic and new vessels began being delivered, Freightos Baltic Index spot charges fell sharply with transpacific pricing to the West Coast (FBX01) dipping under $1,000/FEU in March of 2023. When the Purple Sea disaster started nevertheless, the longer crusing instances for Asia – Europe voyages and the additional vessels deployed to keep up departure schedules on these lanes absorbed that extra capability, pushing freight charges as much as their highest ranges since COVID.
However new vessels continued to enter the market in 2024 and 2025. And even with Purple Sea diversions persevering with all through 2025, the rising provide pushed East – West lengthy haul charges down by 45% yr on yr, with transpacific charges slipping to $1,400/FEU in October 2025.
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Driving a Downcycle
The present orderbook measurement means the fleet will proceed to develop considerably over the approaching few years, such that even with demand progress, most observers challenge a container market downcycle: capability is anticipated to outpace volumes placing persistent downward strain on freight charges, lowering provider revenues and even spurring losses.
Carriers keep that they are going to pull all of the capability administration levers – blanked sailings, idled vessels, service suspensions, gradual steaming and scrapping – to steadiness provide with demand and reduce or keep away from durations of losses. However regardless of the present indicators of overcapacity, the present idle fleet is minimal and only a few older ships have been scrapped. What’s extra, carriers proceed to order extra vessels to affix the already overstocked fleet.
Why no scrapping? The “Recognized Unknown”
Classes discovered and earnings earned in the previous few years could also be motivating carriers to carry on to older ships even on the threat of oversupply.
Extra Capability for Higher Resilience
Although it could not have appeared that manner as delays mounted and freight charges spiked, the slack capability out there through the pandemic did assist carriers preserve containers transferring. Submit-COVID, as famous above, overcapacity was one issue to loss making charges at instances in 2023. However by December, carriers had been diverting away from the Purple Sea, and vessels that had simply been thought-about oversupply had been now key to carriers (largely) sustaining departure schedules regardless of the for much longer voyages. Out there capability was key to serving to shippers preserve their orders coming whereas additionally permitting carriers to maximise volumes and revenues even with the disruption.
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And the record of examples of disruptions for which having extra capability out there has helped carriers alter –- the Russia-Ukraine conflict, Panama Canal drought, Baltimore bridge collapse, port strikes, and tariff frontloading – because the pandemic is an extended one. This record makes a compelling argument that the following unpredictable disruption – the “recognized unknown” – is on the market, and makes holding older, further vessels energetic regardless of the overcapacity threat make sense.
Pandemic-era provider earnings are additionally taking part in an element within the determination to not scrap older vessels. In earlier downcycles, carriers have been incentivized to scrap vessels and use the proceeds to pay down debt or cowl losses from sinking revenues. This time although, carriers have already used these file earnings to pay down virtually all debt on their vessels over the previous few years and nonetheless have money readily available to cowl losses in the event that they come up.
However why are extra container ships on the orderbooks in 2026?
The above elements make a case for holding paid off vessels in circulation, but when these additionally enhance the chance of overcapacity, why are carriers persevering with to order vessels after the 2021 to 2024 spending spree?
As a result of even when the trade is oversupplied, particular person carriers can’t make ordering selections from a market perspective. One provider’s capability acquire doesn’t handle one other’s wants. So one investing in new vessels doesn’t imply a competitor received’t proceed to order too, even when within the mixture it pushes the market (additional) into oversupply.
Totally different carriers have had totally different fleet renewal methods and – particularly given the low price of recent vessels ordered from 2016 to 2020 – some carriers are nonetheless taking part in catch up in a market the place shipyard capability is proscribed and vessels take a very long time to construct. Lastly, the COVID earnings imply carriers have the chance now to put money into new, extra environment friendly and decrease carbon ships and put together for the following twenty-five years, even when it means contributing to a downcycle.
Can capability administration stop downcycle losses?
A lot to the shock of very long time observers, lately carriers have demonstrated the flexibility to handle capability successfully and preserve charges up in instances of demand collapses – first through the preliminary quantity drop within the first months of the pandemic, and extra not too long ago through the month and a half in 2025 when US tariffs on China stood at 145%.
If carriers saved charges stage when demand evaporated, why can’t they do the identical when capability grows?
When demand collapses had been abrupt, like in 2020 and 2025, carriers had been in a position to make a proportionate response – in lots of circumstances simply merely holding vessels wherever they had been on the time – and preserve charges stage.
However when the imbalance is structural, gradual and sustained – like in a supply-drive downcycle – the method of rebalancing may be way more difficult and extended. Because the examples of the supply-driven price slides in 2023 and late Q3 by way of October of 2025 present, it’s more durable to keep up that self-discipline when the drivers are a development as an alternative of a shock. And since incremental prices of taking over further containers lower as soon as a vessel is already largely booked, the economics of container delivery can even typically assist push carriers into low or loss making price environments.
However each situations of extraordinarily low spot charges in 2023 and 2025 had been adopted by durations of price restoration by way of capability reductions at the same time as demand continued to ease, and additional worth will increase as seasonal demand picked up.
This sample is probably going the one we’ll see repeated over the approaching years as capability continues to develop: total downward strain on charges with ranges doubtless decrease than in 2025, and durations of very low spot costs adopted by price recoveries by way of capability administration or will increase in demand.
All issues being equal, this state of affairs must be an enormous driver of price and income ranges within the container market till a rebalance of provide and demand spurs the following upcycle.
On to the following recognized unknown?
However after all, the recognized unknowns that may shake up this sample are on the market: It’s recognized that carriers – in some unspecified time in the future – will resume Purple Sea transits, which can at first set off congestion that may take in capability, however then launch much more provide as soon as the delays unwind, growing the overcapacity problem. And geopolitical disruptions that would shut delivery lanes, or sudden commerce conflict shifts that would drive sudden demand spikes (or collapses) are all too believable.
If these or different disruptions come up within the subsequent few years, shippers will lament greater costs, but in addition be grateful that carriers have the out there capability to maintain containers transferring nonetheless.
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